On Tuesday, the U.S. Department of Justice and the U.S. Patent and Trademark Office (USPTO) issued a policy statement (PDF) outlining how disputes over standards essential patents (SEP) should be considered. The statement arrived after last week's U.S. Federal Trade Commission consent-decree settlement agreement with Google was published. That FTC settlement, currently awaiting public comments, partly dealt with injunctions associated with SEPs. Under the FTC settlement, Google agreed to not seek injunctions against parties (namely Microsoft and Apple) that are willing to license SEP intellectual property from the company.

Also on Tuesday, attorneys for Motorola Mobility, now owned by Google, issued a motion (reproduced here) that proposes to drop two intellectual property infringement claims against Microsoft associated with H.264 video codec patents. Google/Motorola didn't relinquish a final claim against Microsoft concerning a peer-to-peer network patent (U.S. Patent No. 6,069,896).

Microsoft argued in a blog post that the FTC was too lax in its settlement with Google, given the new policy statement issued by the Department of Justice and USPTO. Dave Heiner, vice president and deputy general counsel at Microsoft, claimed that Google still has the ability to block product shipments based on SEP intellectual property claims.

"Unfortunately, the proposed order [from the FTC] does not live up to the approach outlined by the DOJ and the PTO," Heiner wrote. "This is important because the FTC has suggested that its Google order may serve as a template for the resolution of other cases over time."

Standards legal expert Andy Updegrove commented in a blog post that the Department of Justice/USPTO policy statement is "evolutionary and clarifying" rather than representing a definitive approach to such disputes. It may not even stop "the nuclear threat of SEP injunctions," he added.

"As I have pointed out recently, while Consent Decrees (and now policy statements) can have great influence, they are not in themselves binding upon courts," Updegrove wrote. "Consequently, it is possible that the next case before the ITC -- or decided in a U.S. federal court -- may not follow the approach advocated in the policy statement, or agreed to by Google."

Updegrove pointed out that a continued lack of clarity on SEP licensing could lead to Congress getting involved in the matter. He pointed to a July hearing on the topic by the House Judiciary Committee. In that hearing, FTC Commissioner Edith Ramirez suggested in a prepared statement that Congress should consider crafting legislation if the U.S. International Trade Commission (ITC) fails to have the authority to protect the public interest with regard to SEP patents offered under reasonable and nondiscriminatory licensing (RAND) terms.

"The FTC believes that the ITC has the authority under its public interest obligations to resolve all of these questions, and to deny an exclusion order if the holder of the RAND-encumbered SEP has not complied with its RAND obligation," Ramirez wrote in July on behalf of the FTC (PDF). "If, instead, the ITC finds that its public interest authority is not flexible enough to allow this analysis, then Congress should consider whether it should amend Section 337 to give the ITC more flexible authority to prevent hold-up."

In general, regulatory authorities seem to be trying to figure out how to be fair to SEP intellectual property owners, while also preventing patent "hold-ups." A patent hold-up can occur when the patent holder attempts to extract more royalty revenue than implied under RAND licensing. In the case of Motorola Mobility, an ITC administrative law judge found that Microsoft could not accept paying the 2.25 percent per unit royalty that was demanded.

A key problem is that royalty rates for intellectual property are decided after the patent holder makes a RAND commitment to a standards setting organization (SSO).

"While it may be possible for SSO members to negotiate licenses for SEPs before a standard is adopted, this is not a realistic option for many firms that may implement the standard," Ramirez wrote. "Instead, more often SSO members delay this decision and require that the owner of the technology agree to license SEPs on RAND terms as a quid pro quo for the inclusion of their patents in a standard. This makes it easier to adopt a standard, but also creates the potential for hold-up because it defers the negotiation on price until after the standard is adopted."